DOJ Focuses on Eddy Cue in Apple Ebook Price Fixing Trial

The U.S. Department of Justice started presenting its case against Apple in court on Monday over accusations that the Mac, iPhone and iPad maker colluded with publishers to artificially raise ebook prices, and so far the focus of the campaign is the company's Senior Vice President of Internet Software and Services Eddy Cue. According to the DOJ, Apple was the ring leader in a conspiracy with publishers to topple Amazon from its market leading position in book sales and raise book prices, and that Mr. Cue was orchestrating the operation.

Apple, along with Penguin, MacMillan Simon & Schuster, HarperCollins, and Hachette Book Group were all accused of working together to push ebook prices higher by forcing retailers into using an agency pricing model that allows publishers to set book prices instead of stores. All of the publishers eventually settled out of court instead of taking their chances at trial, while Apple has held strong that it did nothing wrong and is now the only company left squaring off against the DOJ.

The DOJ came on strong with what appeared to be a fairly damning case against Apple showing how Mr. Cue worked with publishers to push retailers into an Agency-based pricing model where the publishers get to set book prices -- a pricing model they favored because it set the ground work for pushing Amazon into selling ebboks above a US$9.99 price point.

Through a string of emails between Mr. Cue, book publishers, and then-CEO Steve Jobs, the DOJ detailed how the companies worked together ahead of the iBookstore launch to get retailers on board with Agency pricing -- a move that the government said resulted in higher book prices. The government's case also accused Apple of tossing a "most favored nation" clause into its contracts to ensure that no retailers could undercut its prices, which it claimed had the effect of keeping book prices artificially high.

The DOJ says ebook prices rose because Apple and publishers colluded

Apple countered by stating it was negotiating with publishers independently and had no idea they were also talking with each other about book pricing models. Orin Snyder, representing Apple in court, said the company had "no evidence — zero — that Apple knew anything about interactions between publishers," according to paidContent.

Instead, she said, Apple was simply trying to fight its way into the ebook market and had to deal with what Mr. Snyder called "knock-down drag-out fights" with publishers, and that the only reason HarperCollins signed a deal was because News Corp insisted on keeping its good relationship with Apple intact.

Apple also said its insistance on a "most favored nation" clause in the contracts underscores the position that it didn't care whether or not other retailers agreed to agency pricing. Instead, it gave Apple the ability to ensure it could compete in the market regardless of how other companies priced their ebooks.

Judge Denice Cote, who is overseeing the trial, had Apple concerned about the tone of the trial ahead of opening statements when she said the evidence she had seen so far favored the DOJ. During Monday's court room activity, however, she said she was only offering her opinion as requested by both sides, and that it's up to the DOJ and Apple to present cases that support their positions.

Mr. Snyder added, "Apple should be applauded and not condemned for its beneficial impact on the ebook market," and that before the iBookstore launched the book market was "headed nowhere good." He argued that now the ebook market is open to far more companies than before, and independent authors can now sell their works without working through traditional publishers.

With the DOJ claiming otherwise and focusing heavily on Mr. Cue's involvement, it's a safe bet that both sides will be paying close attention when he takes the stand to testify. That won't, however, happen until June 13, so there are still several days for Apple and the DOJ to bolster their cases before Mr. Cue testifies.

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This is a big case for both the Department of Justice and Apple, and both sides will be pulling out their big guns for the fight. The DOJ's decision to target Mr. Cue makes sense because he was very instrumental in bringing together the iBookstore deals, and the agency does present a case that does an excellent job of painting Apple in a bad light.

Apple CEO Tim Cook has steadfastly maintained that his company did nothing wrong, and the company's defense team said it handled the iBookstore negotiations just like iTunes Store negotiations with the record labels.

Mr. Cook also said that Apple refused to settle because he won't sign a document saying the company did something that it actually didn't. This is going to be an ugly fight, and regardless of the outcome it's a safe bet it won't end soon because someone will file an appeal.

In the included graph it would seem that the line labeled Average Price All Publishers would go upwards after 4/1/2010 INSTEAD OF DOWNWARDS ... unless, of course, the major publishers listed have very little impact on the total book marketplace ... which would bolster Apple’s case ...